The NYT had an interesting article on internist/researcher Dr. Ronald A. Medelmeier whose research is informed by the insights of behavioral economics. I found this quote quite useful:
“Life is a marathon, not a sprint,” he read, adding, “A great deal of mischief occurs when people are in a rush.”
To that end, he studied the psychology around changing lanes in traffic. In an article published in Nature in 1999, Dr. Redelmeier and Professor Tibshirani found that while cars in the other lane sometimes appear to be moving faster, they are not.
“Every driver on average thinks he’s in the wrong lane,” Dr. Redelmeier said. “You think more cars are passing you when you’re actually passing them just as quickly. Still, you make a lane change where the benefits are illusory and not real.” Meanwhile, changing lanes increases the chances of collision about threefold.
The above is particularly striking when read in conjunction with Roger Lowenstein's excellent Sunday NYT magazine article The Way We Live Now: Taking Stock which concludes with the following:
So far, ordinary consumers remain too in hock or too frightened to do either. What money they have is going into bond funds. “The individual investor is saying no más to equities,” notes Robert Barbera, the chief economist for Mount Lucas, a private investment firm. It is hardly a stretch to say that the recovery of companies like I.B.M. is being fueled by the willingness of small investors to lend to them on the cheap.
Most of the people buying bond funds do not use a calculator in making investment decisions. They are captives, understandably, of their experience. But gloom and doom also has its price. It would be a sad twist if people were to mirror their recent excessive risk-taking with excessive caution now.